MercadoLibre, Inc. (NASDAQ:MELI) shareholders might be concerned after seeing the share price drop 19% in the last quarter. But in stark contrast, the returns over the last half decade have impressed. It's fair to say most would be happy with 189% the gain in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Of course, that doesn't necessarily mean it's cheap now.

While the stock has fallen 9.6% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last half decade, MercadoLibre became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the MercadoLibre share price is up 40% in the last three years. Meanwhile, EPS is up 162% per year. This EPS growth is higher than the 12% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. Having said that, the market is still optimistic, given the P/E ratio of 60.55.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that MercadoLibre has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at MercadoLibre's financial health with this free report on its balance sheet.

A Different Perspective

MercadoLibre shareholders are up 7.4% for the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 24% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before spending more time on MercadoLibre it might be wise to click here to see if insiders have been buying or selling shares.

But note: MercadoLibre may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.